Indian authorities alleged that to save taxes, Volkswagen imported almost all of the cars in unassembled condition and showed them as imported parts to save taxes.
The entire car import attracts 30-35% taxes while importing car parts attracts only 5-15% taxes.
Because of this, Indian authorities slapped a tax notice of $1.4 billion on Volkswagen for the breakdown import of its Skoda, VW, and Audi cars. This is the biggest ever tax notice for any car maker.
VW India has chosen legal methods to counter this biggest-ever tax notice and in the court hearing, they mentioned that in 2011 they informed the UPA government and authorities at that time about their “part-by-part” import.
This tax dispute comes when the German Volkswagen group is battling with low demand in the European market and in Indian market also it is not a biggest contributer in the last year cars seller. While it’s luxury cars segment is also not performing well in front of the other luxury car seller in Indian market such as Mercedes.
Volkswagen argued that they did not import the whole car as a kit, they imported components and combined them with some locally made components to make the whole car.
Indian authorities also alleged that Volkswagen used some internal software to break a single unit of a car into multiple components when they received new car orders.
In response to this Volkswagen has mentioned that the internal software used only to help dealers to convey car orders and help them to track.
This case is in Mumbai High Court and is due to start hearing on February 5. Government sources tell Reuters if Volkswagen lose this tax dispute then with penalties they might have to pay $2.8 billion.